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Retail Real Estate News & Trends in Southern California
 

Retail Landlords Struggle With the Logistics of Backfilling Vacated Space with Entertainment Concepts

By REBusiness Online, January 2, 2018

With multi-level hitting stations and open driving ranges, Dallas-based Topgolf epitomizes the high degree of variability in spatial requirements for entertainment concepts.

With multi-level hitting stations and open driving ranges, Dallas-based Topgolf epitomizes the high degree of variability in spatial requirements for entertainment concepts.

As 2018 gets underway, retail real estate finds itself at an odd juncture.

According to CNN, more than 6,700 stores either closed or announced plans to close in 2017, leading many to consider last year to be the beginning of the end for brick-and-mortar shopping. Yet a new report from Tennessee-based retail advisory firm IHL Consulting Group notes that for every company that closed stores in 2017, there were nearly three companies opening new stores to offset it.

Whether you believe retail is dying or evolving, there’s no arguing that the inability of certain tenants — mainly apparel-based department stores — to compete with e-commerce has caused millions of square feet of retail real estate to be returned to the market.

Owners of these properties face the challenge of backfilling these spaces with tenants that aren’t likely to share the same fate — restaurants, gyms and entertainment concepts. But when it comes to backfilling a big box or anchor space with an entertainment concept, merging the existing space with the design requirements of the tenant can be a major headache for landlords.

With 58 million square feet of project designs under his belt, Randy Stone, associate principal at Dallas-based architecture firm Omniplan, knows that every entertainment project has different spatial requirements. The primary dilemma that both architects and developers face with these projects involves whether to scrape the existing structure or to revamp the structural grid in place.

“When you’re repurposing or backfilling a big box, you first have to determine whether to tear it down, take off the top floor, retrofit the existing structure or force the design of the entertainment component into the existing structure,” says Stone. “You have to do your due diligence and have testing labs come in and find out what the structural grid can support.”
Adding a ropes course to its lineup of activities generates additional revenue for Cinergy, but also requires minimum ceiling heights of 22 to 25 feet.

Adding a ropes course to its lineup of activities generates additional revenue for Cinergy, but also requires minimum ceiling heights of 22 to 25 feet.

Stone adds that traditional big boxes don’t usually work for entertainment tenants, which have smaller overall footprints but want clear-span, open-environment layouts. As such, he says, many theaters and entertainment concepts must design smaller facilities in order to fit in marquee locations.

Tenant Perspective
Jeff Benson, founder and CEO of Cinergy Cinemas and Entertainment, is currently experiencing firsthand the difficulties of introducing his concept into vacated retail spaces.

Cinergy, which offer laser tag, ropes courses, bowling and arcade games in addition to movies, food and beverages, is in talks with three malls to bring the concept to their anchor spaces. Cinergy would remodel the existing space in two of those malls if the deals close.

“The challenges of bringing an entertainment concept into an existing retail space are immense,” says Benson. “Columns and ceiling heights are usually the big issues. Sometimes you can work with them and sometimes you can’t, so the location really has to have the demographics to justify the cost of remodeling the space.”

Cinergy currently operates centers in Copperas Cove, Midland and Odessa, with another location under construction in Amarillo. The company has also closed deals to open centers in El Paso and Tulsa, Oklahoma, over the next several years.

“Our Tulsa center is backfilling an old theater and ajacent retail space and installing bowling and amusement,” says Benson.

“This requires careful consideration of the column grid and spacing. Our new-build prototype facilities are about 90,000 square feet, so it’s a big floor plan to retrofit into an existing space. We’d rather just scrape the existing structure and build from scratch.”

Vacated anchor spaces at malls make good locations for entertainment concepts, says Venture Commercial’s Larry Leon, a specialist in tenant representation for restaurant and entertainment retailers.
“Entertainment concepts typically go into malls for parking and a climate-protected place for families to line up,” says Leon. “These concepts often draw from huge circles and space their units 15 to 20 miles apart.”

Developer Perspective
From entertainment giants like Main Event and Topgolf to niche operators like Glowzone and Kidzania, there’s no shortage of competitors in the entertainment retail space, and each concept is its own beast in terms of spacing and design.

“One of the biggest challenges of leasing for entertainment tenants is that they don’t have consistent requirements,” says Gar Herring, president and CEO of The MGHerring Group, a Dallas-based owner, developer and manager of retail properties. “You can do build-to-suit projects for these users, but some want to buy and some want a turnkey deal, so you really have to be flexible.”

Preliminary design challenges aside, retail owners that opt for entertainment anchors should also be prepared to subsidize capital improvements to those spaces.

“Most entertainment tenants today require heavy tenant improvement investment by the landlord in the $200 to $300 per square foot range,” says Venture Commercial’s Leon. “Owners have historically been reluctant to provide this level of improvement dollars, but recently, they’ve come to realize the importance of these tenants to the overall mix, as well as the necessity of filling their big box spaces with tenants that will draw lots of people.”

Because the requirements of entertainment users vary so much from concept to concept, they often struggle to provide blueprints and prototypes to developers that want to feature them as anchor tenants. In addition, evaluating these users on traditional retail metrics can be misleading because there’s little benchmark data for them. The lack of comparative data can also muddy the waters when it comes to financing construction of build-to-suit projects, as well as acquiring stabilized properties anchored by entertainment tenants.

“Cap rates on centers anchored by entertainment users are just not as well-known,” says Herring. “You might get more cross-shopping with an entertainment anchor, but some developers still see the grocery anchor as a safer bet because exit cap rates on those assets are very straightforward.”

Parking Wars
If there’s one issue that every source interviewed for this piece agreed on, it’s that parking is a major point of contention in the world of entertainment retail. Whether it’s a theater, bowling alley, arcade, mini theme park or some combination of those concepts, they all tend to use large blocks of parking spaces for long periods of time.

While freestanding locations have only city codes to adhere to, operators of entertainment centers in malls and shopping centers routinely spar with landlords and other retailers over parking. Parking represents a co-tenancy haggling point for entertainment tenants vying for old spaces and a key challenge for architects tasked with designing new spaces for these users.

But despite all these potential headaches for tenants and landlords alike, in this day and age, very little retail product is insulated from e-commerce. For the time being, entertainment is a rare exception, so it just may be worth all the headaches and hassle.

View original article here…


Contrary to the belief Los Angeles would set the tone for legislation governing the legal sale of recreational marijuana, the city only began issuing permits this week.

As noted in a post just before the new year, licensed medical marijuana dispensaries are first in line to receive recreational pot sales licenses. But the first authorized sales in LA are unlikely to begin until early next week (sometime after January 8th).

Meanwhile, recreational pot sales have already begun in West Hollywood and several of the mid-cites municipalities surrounding Los Angeles proper.

On a Positive Note (For The Retail Business)…

In contrast to the legislation proposed by the LA City Council in mid-December, the city now plans to issue 600-700 retail pot sales licenses. This is up from the city council initial recommendation of capping sales licenses at 390 retail shops.

On The Downside…

Attorney General, Jeff Sessions, announced plans to end an Obama-era pot non-prosecution policy that allowed state-sanctioned medical + recreational marijuana sales.

There is still a congressional level budget clause that prohibits the Justice Department from spending money to prevent state-approved marijuana production, distribution, and sales.

But regardless, the increased threat of federal prosecution should give California retail landlords pause.


Centers Business Management (CBM) leasing agent, Jason Ehrepries, recently completed a lease transaction representing landlord and tenant, Centinela Feed (pet store), on a 7,200 SQFT retail space. The street retail property is on busy Commonwealth Avenue, just west of Malden Avenue in prime Fullerton. The site is near the heart of downtown Fullerton, adjacent to City Hall, the main branch of the public library, and Amerige Park.


Centers Business Management (CBM) Valley Division Leasing Director, Dave O’Connell, and leasing agent, Brett Mero, recently completed a lease transaction representing the landlord in a deal with California Credit Union on a 2,426 SQFT retail space. The unit is in a large-scale mixed-use residential + retail development at the intersection of Plummer and Corbin in prime Northridge. The development includes several hundred apartment units positioned above ground floor retail units. Co-tenants include the Stand (restaurant), Serious Cycling (fitness), and Optometics (optometry clinic).


Centers Business Management (CBM) leasing agents, Geoff Grossman and Jason Ehrenpreis, recently completed a lease transaction representing the landlord and tenant in a deal with a boutique nail salon on a 2,000 SQFT retail space. The unit is in a corner strip center at the intersection of National and Sepulveda in prime West LA. The property is positioned at the 10 freeway offramp, adjacent to the 405 + 10 freeway interchange. The site is across the street from a high volume sales Ross Dress For Less (discount store), and across the intersection from a Vons + CVS anchored community center.


2018 is upon us… Can you believe it!? Where or where does the time go?

Anyway, if you’re like a lot of people out there, in the run up to the end of the year, you’re consumed with…

NEW YEAR’S RESOLUTIONS!

And what are New Year’s Resolutions, really? In a word, Goals.

Now, for most business owners and investors, annual goals involve improving your business and bettering your investments.

As a shopping center landlord, your property IS your business AND your investment. Thus, your goals for the New Year center on improving your property – thereby bettering your investment.

Here are three of the most common goals for shopping center improvement…

Reducing Vacancy

Are you struggling with lingering vacancies that you just can’t seem to fill? Despite the economy’s improvement, many landlords are in exactly the same boat.

If you’re facing this problem, here are the three most likely culprits:

Unrealistic Expectations

Endcap spaces in prime locations command high dollar rents. Inline and elbow spaces in sub-prime locations do not. It’s really that simple.

So if you’re dealing with a lingering vacancy, it may be time to consider lowering your asking rate or being more flexible with the offers you receive.

Also, if you’re trying to fill a larger space, it may be worthwhile to market small space availability, and offer tenant improvement dollars to subdivide the larger space.

For Lease By Owner

It’s certainly fair to say you know your property, likely better than anyone else. And having owned the property in its current location for some time, you’re probably knowledgeable about the surrounding area.

Leasing agents, however, are zeroed in on the tenants best suited to your property-type, the tenants active in the marketplace, and the real PULSE of the area. If you’re like most landlords, it’s doubtful you have the time to acquire and maintain this board of a knowledge-base.

And a leasing agent’s value doesn’t end with property-type and market knowledge. Typically agents have a list of tenants actively seeking space. And they’re connected to a city, state and even nationwide network of brokers and corporate tenant real estate agents all representing active tenants.

Hiring a leasing agent, who doesn’t get paid until your vacancy is leased, puts all of these resources to work in the effort to find you a higher quality tenant, faster.

Time For Some New Blood

Perhaps your property is already listed with a broker. Maybe it’s been listed with that broker for a long time. A REALLY long time. But with little or no results to show for the time and effort.

This doesn’t mean your current broker isn’t competent or qualified. And it doesn’t mean they’re not doing a good job.

Sometimes listings just get tired. There may have been a rush of activity when your property first came on the market. But that time has long passed, and now your empty unit is just one more in vast sea of vacancies.

In this scenario, the best thing to do is to bring in some new blood. A new broker with a fresh perspective, different connections and another approach to leasing your vacancy.

Lowering Property Expenses

Your shopping center is an investment, right? It’s supposed to generate money. Not rack up costs.

Yet each month as look down your list of property expenses, you scratch your head and wonder “what are all of these charges!?”

Unfortunately, it does cost money to maintain a shopping center. But there is a strong possibility that you’re paying for more than you have to.

Here are three potential property cost-reducing strategies:

Lower Your Vendor Expenses

Of course vendors are necessary to maintain your property. But are their services REALLY worth what you’re paying? In other words, is the quality of the service your current vendors provide really worth the fees they charge?

Could it be other vendors provide comparable or even superior quality services for less money? Seek bids from alternative vendors, and you’re likely to find higher quality, lower cost providers begging for your business.

Reassess Your Property Taxes

The economy has certainly improved since the depths of the Great Recession. But that doesn’t mean your property’s value has rebounded to its pre-recession level. And that means in all probability, your property’s current assessed value exceeds its actual market value.

Fortunately, there are companies that specialize in reducing commercial property assessments. They don’t charge a dime unless they’re successful in lowering your assessment. And their fee is merely a percentage of you assessment reduction.

Convert to Triple Net (NNN) Lease

We probably don’t need to reiterate the details of how a Triple Net lease works, but here’s a quick crash course… Your tenants pay for your property taxes, building insurance, and common area maintenance (with a charge added to their monthly rent).

If your tenants aren’t on Triple Net Leases, your property expenses are SIGNIFANCLY higher than they could be.

But this is an easy fix. As existing tenants come up for lease renewals, and as new tenants enter your shopping center, sign them to Triple Net Leases. It’s the single largest property expense reducing tool at your disposal.

Maintenance

As we’ve already discussed, your property is supposed to generate money, not vacuum it out of your bank account. That’s what makes maintenance, especially big, expensive projects such a bitter pill.

But the reality is, the condition of your property is directly proportional to its value and income generating potential.

Deferred Maintenance

A property in poor physical condition, with lingering issues – leaky roof, cracked and deteriorating parking lot and sidewalks, dying or dead landscaping, ADA non-compliance – isn’t well-patronized. And it winds up filled with frustrated, underperforming tenants that grow more and more eager to vacate the property every day.

One by one, your tenants depart. And you’re left with an empty shopping center no one wants to lease, because no one wants to shop there.

Liability Issues & ADA Non-Compliance

Cracked and broken parking lots and sidewalks are trip and fall lawsuits waiting to happen.

And ADA non-compliance is a huge legal can of worms that no landlord wants opened.

In short, deferring maintenance may improve cash flow in the short term. But it seriously hurts your property’s value in long term. The potential lawsuits can be financially devastating.

How CBM’s Professional Leasing & Property Management Services Can Enhance the Value of Your Shopping Center

Whether you’re facing long term vacancy, rising property expenses or mounting maintenance issues, CBM can help.

Our team of industry leading shopping center leasing and management pros will solve your problems.

And the end result? You’ll achieve your 2018 goal of improving your shopping center’s investment value!

Find Out More About CBM’s Leasing & Property Management Services

For more info on how CBM can help enhance your property’s investment value, visit our services page.


Centers Business Management (CBM) leasing agent, David Levcovitch, recently completed a lease transaction representing the landlord and tenant, the City of Santa Clarita, on a 3,932 SQFT community center. The unit is in newer community shopping center at the intersection of Flying Tiger and Sierra Hwy in prime Santa Clarita. The property is situated amid a productive and growing retail and residential sector.


Centers Business Management (CBM) leasing agents, Geoff Grossman + Jason Ehrenpreis, recently completed a lease transaction representing the landlord on a deal with Jackson Hewitt (tax prep) on a 984 SQFT retail space. The unit is in a busy Food4Less anchored community center at the intersection of Santa Fe and Florence in prime Huntington Park. In addition to Food4Less, the center’s A+ co-tenants include VIVA 99 cents store and Carl’s Jr.


Centers Business Management (CBM) leasing agent, Geoff Grossman, recently completed a lease transaction representing the landlord and tenant, Cha Spa, a boutique day spa, on a 1,520 SQFT retail space. The street retail unit is situated next to Sketchers (shoe store) at the intersection of Manhattan Avenue and Manhattan Beach Boulevard, just steps from the ocean in the heart of Manhattan Beach. The property is situated amid high-end retail boutiques, trendy eaters, and fashionable cafes, less than a block from the Manhattan Beach pier.